Crude oil declines for first time in four days as U.S. dollar gains

Oil fell from a one-week high reached Wednesday after the U.S. Department of Energy said crude stockpiles dropped unexpectedly last week. Stock markets fell across Europe on concern this year's rally has outpaced the prospects for economic growth.

“When the dollar is strong and equities are lower, then the oil market goes lower too,” Frank Schallenberger, head of commodities research at Landesbank Baden-Wuerttemberg, said by phone from Stuttgart. “It's unusual to be stuck so long in a range” between US$75 and US$80.

Crude oil for December delivery dropped as much as 63 cents, or 0.8 percent, to US$78.95 a barrel in electronic trading on the New York Mercantile Exchange and traded at US$79.09 a barrel at 11:14 a.m. London time. The contract expires tomorrow. The more actively traded January contract was at US$79.63.

Crude oil traded above US$80 a barrel Wednesday for the first time since Nov. 11 after the Department of Energy data showed crude inventories declined 887,000 barrels to 336.8 million last week. Stockpiles were forecast to increase 300,000 barrels, according to a Bloomberg News survey of analysts.

U.S. crude stockpiles are currently about 5 percent above the same level last year, almost a year after the Organization of Petroleum Exporting Countries agreed production cuts.

“OPEC production has fallen a lot in the last fifteen months and the stocks still remain high,” Schallenberger said. For that reason, Wednesday's drop in inventories was only mildly positive, he said.

The dollar traded as high as US$1.4843 against the euro, after closing up Wednesday.

“If the dollar goes to US$1.50 or above, we might see some more movement on oil,” Sintje Diek, an analyst with HSH Nordbank, said by phone from Hamburg.

Brent crude oil for January settlement dropped as much as 55 cents, or 0.7 percent, to US$78.92 a barrel on the London-based ICE Futures Europe exchange and traded at US$78.98 as of 11:14 a.m. local time.

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